ESG Reporting in Singapore: A Strategic Guide for Businesses

The significance of Environmental, Social and Governance (ESG) reporting has magnified globally as investors, consumers, and regulatory bodies increasingly demand higher transparency and ethical standards from businesses.

Contributing Advisor

Amanda Lam

Consultant, International Business Advisory

ESG metrics are now crucial indicators that assist stakeholders in assessing companies' commitments to addressing environmental impact, social responsibility, and governance practices. Internationally, these reports provide a comprehensive overview of a company’s sustainability efforts, risk management, and long-term resilience. Singapore stands at the forefront of this movement within Asia. The nation's strategic approach integrates ESG reporting into its broader economic and social governance frameworks. By promoting stringent ESG standards, Singapore not only enhances its corporate sectors' competitiveness but also positions itself as a hub for sustainable investment in the region.

The primary aim of this article is to help businesses in Singapore with a strategic blueprint for effective ESG reporting. This guide will delve into the nuances of regulatory compliance, leveraging ESG for strategic advantage, and enhancing stakeholder engagement.

ESG legal framework

Singapore has consistently advanced its ESG frameworks, reflecting a commitment to sustainable development and corporate responsibility. This section explores key milestones in Singapore’s ESG regulatory evolution and anticipates future trends in this dynamic landscape.

Evolution of mandatory sustainability reporting

The Singapore Exchange (SGX) mandated all listed issuers to produce an annual sustainability report on a "comply or explain" basis. This directive aimed to enhance transparency and inform investors about the sustainability practices of listed companies. The reporting framework requires issuers to:

• Adopt a recognized sustainability reporting framework.
• Identify and report on material ESG factors pertinent to their operations.
• Disclose sustainability policies, practices, performance, and targets concerning these material ESG factors.

Climate reporting standards

SGX expanded its sustainability reporting requirements to include specific climate-related disclosures, marking a significant step towards comprehensive environmental reporting. This phased approach is designed to align with the upcoming standards from the International Sustainability Standards Board (ISSB), anticipated to be finalized soon. The progression includes:

• Mandatory climate reporting on a "comply or explain" basis for all issuers starting in 2022.
• By 2023, specified sectors must adhere to compulsory climate reporting.
• From 2024, additional sectors will be required to provide climate disclosures.
• The "comply or explain" model mandates that companies either adhere to the set principles or provide a rationale for any deviation, enhancing the clarity and accountability of disclosures.

Leveraging technology and aligning with global goals

Investing in advanced technologies and digital tools will enable businesses to effectively manage ESG risks and opportunities by providing robust data analytics and performance tracking capabilities.

One of the most significant advancements in Singapore's ESG landscape is the introduction of Project Greenprint by the Monetary Authority of Singapore (MAS). This initiative aims to harness technology to increase transparency and efficiency in ESG reporting. Key components of Project Greenprint include:

ESGpedia Registry

This blockchain-powered platform serves as a comprehensive repository of ESG data gathered from various certified and verified sources. It addresses the challenge of greenwashing by enabling more accurate tracking and analysis of sustainability commitments across sectors such as agriculture, construction, transportation, and renewable energy.

MData Orchestrator

Acting as a central hub, this platform aggregates sustainability data from diverse sources, enhancing the depth and breadth of information available for detailed ESG analysis. This is crucial for stakeholders making informed investment and financing decisions.

Green Taxonomy

Crafted by the Green Finance Industry Taskforce (GFIT), this taxonomy categorizes activities into "green" and "transitioning towards green." It features a "traffic light" system, designating activities as green, amber (transition), or red (harmful), depending on their impact on climate change. This innovative method has become popular worldwide, including in ASEAN countries and the European Union.

Greenprint Marketplace

This upcoming platform will serve as a junction for green fintech and technology providers to connect with investors, financial institutions, and corporations. It aims to cultivate partnerships and drive innovation within the sustainable finance sector.

ESGenome Portal

To support consistent ESG (Environmental, Social, and Governance) disclosures, ESGenome provides a centralized platform for investors to access ESG data and information free of cost. As part of their ongoing listing obligations, companies that utilize SGX ESGenome must still publish an annual sustainability report on a comply-or-explain basis. These sustainability reports must be published on SGXNet.

Guidelines on environmental risk management

The MAS set forth Guidelines on Environmental Risk Management (ERM) in 2020 for banks, asset managers, and insurers. These guidelines are pivotal in integrating environmental considerations into corporate strategies and risk management frameworks. Key components include:

Governance

Boards and senior management are expected to develop, implement and integrate environmental considerations into corporate strategies and maintain oversight of environmental risk management.

Risk Management

Financial institutions (FIs) must implement policies to assess, monitor, and manage environmental risks effectively.

Disclosure

FIs are required to disclose environmental risks regularly to enhance investor awareness and market discipline.

Initiatives Against Greenwashing: Retail ESG Funds

To combat greenwashing and enhance investor understanding of ESG funds, the MAS introduced the Disclosure and Reporting Guidelines for Retail ESG Funds. Funds employing ESG-related terms must reflect an ESG focus on its investment portfolio and/or strategy. As a guide, a scheme is considered to be “primarily invested” if at least two-thirds of their net asset value are in line with their ESG strategies. Existing funds not meeting these criteria must rename or rebrand to align with the new guidelines.

Guidelines on responsible financing

Established by the Association of Banks in Singapore (ABS), the Guidelines on Responsible Financing set the standard for integrating responsible financing into bank operations. These guidelines emphasize:

• Management's commitment to responsible financing.
• Governance frameworks to support responsible financing.
• Capacity building to enhance staff understanding and implementation of ESG values.

ESG components

Environmental initiatives

The city-state's approach includes rigorous metrics for tracking greenhouse gas emissions across three scopes:

• Direct emissions from owned sources;
• Indirect emissions from purchased energy; and,
• Other indirect emissions from the company's value chain.

Additionally, companies are encouraged to report on their energy consumption, which encompasses energy sourced from both renewable and non-renewable resources, highlighting efforts towards energy efficiency and sustainability.

Companies are required to report their total water consumption and waste generation, providing a clear picture of their environmental impact and efforts towards conservation and sustainable resource management.

Social responsibility

ESG reporting includes detailed metrics on diversity, such as:

• The representation of different demographic groups within the company; and,
• The average training hours per employee, underscoring the emphasis on fair labor practices and employee development.

Community engagement is another vital component, with companies expected to demonstrate how they contribute to the societal well-being beyond their business operations. This includes initiatives that promote human rights, ethical supply chain management, and active participation in community development programs.

Governance practices

The regulatory framework, including the Singapore Exchange (SGX) Listing Rules and the Environmental Protection and Management Act, mandates thorough disclosures regarding ESG risks and management strategies. Governance metrics assess aspects such as:

• Board composition;
• The diversity of management; and,
• The extent to which sustainability reports align with internationally recognized frameworks.

Companies are also expected to report on the assurance of their sustainability reports, whether through external or internal independent assurance, ensuring the credibility and reliability of the information provided.

Comparative analysis of ESG reporting frameworks

The following comparison table should help in understanding the different dimensions and emphasis of each ESG reporting framework, aiding businesses, and stakeholders in choosing the appropriate framework(s) for their specific needs and regulatory requirements:

The selection of an ESG reporting framework by a business will dictate the specific ESG metrics it must evaluate. Additionally, these metrics vary in their format—some are measurable in numerical values and percentages, whereas others are evaluated through simple yes/no responses.

The World Economic Forum has released a compilation of 21 core and 34 expanded metrics and disclosures, centred around four key areas: People, Planet, Prosperity, and Principles of Governance. This set of metrics and disclosures is the result of a consultative process involving over 200 companies, investors, and various stakeholders.

Integrating ESG into business strategy

Materiality assessment and strategic alignment

A critical first step in embedding ESG into corporate strategy involves conducting a materiality assessment. This process includes identifying, analyzing, and prioritizing ESG issues that are most relevant to the company’s industry and business model, as well as to its stakeholder interests.

Such diligence ensures that the business focuses on areas of greatest impact and relevance, therefore enhancing the accuracy and effectiveness of ESG initiatives.

Clear and transparent reporting

For ESG efforts to contribute to long-term value, they must be transparently and consistently reported. Companies should adopt standardized reporting frameworks such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), or the Task Force on Climate-related Financial Disclosures (TCFD). These frameworks facilitate clear communication, allowing stakeholders easy access to ESG disclosures and ensuring comparability across industries.

Stakeholder engagement

This subsection outlines best practices for engaging with investors, consumers, and employees, and demonstrates how effective communication of ESG commitments can benefit a business.

Best practices for engaging stakeholders on ESG initiatives

• Investor relations: When it comes to investors, clarity and consistency are key. Businesses should regularly update investors on their ESG strategies and performance, highlighting both successes and areas for improvement. This can be achieved through dedicated sections in annual reports, investor briefings, and ESG-focused webinars. Ensuring that ESG metrics are aligned with internationally recognized frameworks can also help in maintaining transparency and comparability.
• Consumer engagement: Consumers are increasingly drawn to brands that demonstrate genuine commitment to sustainability. Companies should leverage their marketing channels to communicate their ESG efforts and achievements. This might include using social media to share stories behind sustainable products or initiatives, hosting community events focused on sustainability, and including ESG information on product labeling to educate consumers about their purchases.
• Employee involvement: Employees are central to advancing any ESG agenda. Firms should foster an inclusive culture where employees are encouraged to contribute to sustainability goals. This could involve training programs, sustainability committees, and incentives for employees who champion sustainability initiatives. Regular internal communication about the company’s ESG goals and achievements can help build a sense of ownership and pride among the workforces.